"Old is Gold"... Conflicts Between Associations and Contractors Resolved Across Seoul Redevelopment Sites

In many redevelopment project sites where the union and construction companies were at odds over reasons such as increased construction costs and unfulfilled promises, a spirit of reconciliation is emerging. With rising material and labor costs, finding a new construction company offers little practical benefit, and concerns over project delays due to litigation are growing, leading more unions to choose 'stability' over 'conflict.'

Bird's-eye view of Bukahyeon District 2

According to the redevelopment industry on the 2nd, the redevelopment union of Bukahyeon 2 District in Seodaemun-gu, Seoul, decided to continue the contract with the construction consortium (Samsung C&T and DL E&C), which had been in conflict over increased construction costs. The union had planned to propose the 'Cancellation of Construction Company Selection and Termination of Construction Contract' at an extraordinary general meeting last month. However, three days before the meeting, the construction consortium sent a letter to the union lowering the construction cost to 7.48 million KRW per 3.3㎡, leading to a dramatic agreement.

The conflict arose when the construction consortium demanded an increase in construction costs from 4.9 million KRW per 3.3㎡ at the time of the 2020 contract to 8.59 million KRW. The union proposed 6.87 million KRW per 3.3㎡, but it was not accepted, and eventually, the union pushed for contract termination. The conflict was resolved at 7.48 million KRW per 3.3㎡, higher than the union's initial offer, likely because the union considered project delays caused by changing the construction company.

An industry insider explained, "Changing the construction company can take at least six months to a year."

Earlier, for the same reason, the Hongje 2 District in Seodaemun-gu, which had conflicts with Hyundai Engineering & Construction, did not propose the contract termination agenda at last month's general meeting. In Hongje 2 District, the contract was signed in 2020 at 5.12 million KRW per 3.3㎡, but Hyundai E&C proposed 8.98 million KRW, leading to conflict. The union and the construction company are currently negotiating for a realistic construction cost.

Perspective view of Hannam 2 District proposed by Daewoo E&C

Additionally, Daewoo Engineering & Construction, which faced the risk of contract termination in the Hannam 2 District redevelopment in Bogwang-dong, Yongsan-gu, Seoul, received renewed trust from the union.

The Hannam 2 District union held an extraordinary general meeting on the 17th of last month and voted on the motion to reaffirm Daewoo E&C as the construction company. Out of 909 total members, 735 (80%) participated in the vote through written and on-site attendance, resulting in 414 votes in favor, 317 against, and 11 invalid or abstentions, reaffirming Daewoo E&C.

The discussion on terminating Daewoo E&C's contract arose due to conflicts over 'height restriction relaxation.' When Daewoo E&C was selected as the construction company last November, it proposed the '118 Project,' which relaxed the height restriction to 118 meters, allowing construction up to 21 floors, successfully persuading union members.

However, nearly a year after the selection, with no progress on regulatory relaxation, calls for revoking the construction rights emerged internally. Although the motion was rejected at that time, the union president unilaterally decided to hold an extraordinary general meeting, leading to this reaffirmation vote. Union members appear to have decided to reaffirm Daewoo E&C considering project delays and increased construction costs.

An industry insider said, "There is a burden of litigation when terminating construction contracts, so neither the union nor the construction company gains anything," adding, "Especially since finding a new construction company takes time and construction costs continue to rise, unions seem to prefer stability over conflict."